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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Orbit Pharma Ltd, a subsidiary of Zenith Holdings Ltd, sold goods to Zenith's other subsidiary, Nova Labs Ltd, for Rs 80 lakh. Orbit also sold goods to an unrelated party for Rs 50 lakh. In Orbit's financial statements under AS 18, which statement is correct?

Nova Labs is a related party of Orbit Pharma as a fellow subsidiary under common control of Zenith Holdings. Orbit must therefore disclose the Rs 80 lakh sales and the nature of the relationship in its own financial statements; the unrelated Rs 50 lakh sale is not covered.

  1. ANova Labs is a related party as a fellow subsidiary, so the Rs 80 lakh transaction is disclosed with the nature of relationshipCorrect
  2. BNova Labs is not a related party because there is no direct shareholding between Orbit and Nova
  3. COnly the Rs 130 lakh total sales need be disclosed
  4. DDisclosure is required only in consolidated statements of Zenith Holdings

Explanation

Fellow subsidiaries are related parties because they are under common control. Orbit must disclose the Rs 80 lakh transaction, the relationship and other required details in its own statements. Absence of direct shareholding is irrelevant, and the Rs 50 lakh unrelated sale is not disclosed as a related party item.

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